Navigating the Intersection of Insolvency and Arbitration: Understanding Jurisprudential Fissure and Tensions

The interplay between insolvency and arbitration mechanisms remains a significant topic for jurisprudential discussion and scholarship. The coexistence of both laws is best described by the US Court as a ‘Conflict of two near-polar extremes’. This variance is premised upon the contrasting and contradictory objectives of both laws. Insolvency resolution is aimed at a centralized and unified mechanism, where all the claims concerning the corporate debtor are consolidated and dealt with to provide a fresh start to a corporate debtor. Contrastingly, arbitration is a dispute resolution mechanism that is based on the principle of party autonomy, where judicial intervention is expected from nil to zero. However, complexities and confusion arise when parallel proceedings are initiated under both frameworks to govern the same entity, i.e., the corporate debtor. The conflict lies in the governing authority and nature of the law, that is, which law will prevail over the other. Through this paper, an attempt has been made by the authors to understand the complexities arising from the intersection of the two legislations. The authors’ main objective is not only to deal with these issues from a legal perspective but also to touch upon the practical challenges faced by the stakeholders. For this purpose, the paper provides an extensive analysis of the legislative schemes, judicial pronouncement, and global approaches. To have an overall understanding, the authors also underpinned the plausible implications of adopting international frameworks and concluded by emphasising the need for legislative reform. By highlighting these issues, the authors aim to bring attention to the legislative gaps that exacerbate these conflicts and make a call for clearer, more coherent solutions.